Whats wrong with this simple friend and family structure?

After contemplating on various formal fund structures, which are totally overkill and unaffordable for my purpose, I have come full circle and wonder what is wrong with the following entity if only close friends and family invest:

-One single entity Inc (ABC Capital Inc) in Seychelles or Nevis that is both the fund and manager. No other activity besides trading.

-ABC has voting and non-voting common stocks. I will have all voting common and investors have non-voting common, otherwise all identical. Alternatively, for documentation sake, all stocks can be voting common but all investors have a side shareholder agreement with me such that they irrevocably give me the voting rights.

-the only management and director is me. I have an employment agreement with ABC such that I get compensation based on performance table (if fund increases x% i get y% etc).

-Investment profits will be tax-free since based in a tax haven. ABC should be able to open a bank account and brokerage account. I can get compensation if a performance target is met (no mgmt fee).

I see the structure is rather informal and unsophisticated, but still better than pooling friends money into my personal trading account. The Interactive friend account setup doesn't work for me as some investors cannot open an IB account.

 

Where are you located?

 

not US

 

Got it. If it were US I would suggest a different structure, but similar.

 

I see if structured as a typical fund + manager structure, legally it would be difficult to transfer compensation from fund to manager. Hence, the single entity + performance-linked employment with that entity. Single entity involves various downside, especially potential mixing of fund and other set-up money, but should be manageable.

What's wrong with this structure?

 

Nothing is wrong, except I'm not familiar with foreign rules and tax issues. If you were in the USA, I would suggest an LLC with multiple capital type partners. If it's all friends and family that don't mind comingling, this is fine. You have capital limited partners and managing partners. You can get your fee as the managing partner and as a capital partner if you add funds too.

 

You'd still need to be regulated if you lived in the UK.

GAT

 

I do not live in the UK.

 

what's the problem with this structure

 

Why would there be a problem with this structure?
Personally I would always contact an accountant or tax-lawyer to review/setup...